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Price-Moves Rule, CFTC, Allstate, Spain, Lloyds: Compliance

Feb. 22 (Bloomberg) -- U.S. equity markets should limit price moves before resorting to the current technique of halting a stock when it fluctuates a certain amount, according to a report last week from advisers to regulators.

The system, known as limit-up/limit-down, would prevent prices from moving beyond specified bands based on trading in the previous five minutes and trigger pauses only if liquidity, or trading interest, remains insufficient during the period, the advisers to the Securities and Exchange Commission and the Commodity Futures Trading Commission said.

Exchanges implemented single-stock circuit breakers after the 20-minute rout on May 6 erased $862 billion from the value of U.S. shares before prices rebounded. The pause lasts five minutes for Standard & Poor’s 500 Index and Russell 1000 Index companies as well as more than 300 exchange-traded funds when they rise or fall at least 10 percent within five minutes. The Feb. 18 report recommends expanding the program to “all but the most inactively traded” stocks, ETFs and related derivatives.

The SEC and CFTC formed a joint committee to review regulation after the May 6 plunge left investors concerned about the fragility of the market. The circuit breakers, which started in June, have been triggered by at least 21 companies, according to data compiled by Bloomberg News.

The five-minute halt “has been particularly problematic in a number of situations in which a single erroneous trade triggered the pause,” according to the report. The recommended system is “highly desirable if it operates as a supplement to the present process.”

For more, click here.

Compliance Policy

CFTC Rule Would Hurt Municipal, Pension Swaps, Bank Groups Say

Financial-industry groups said a U.S. Commodity Futures Trading Commission rule for swap dealers should be revised because it would impose a fiduciary duty that goes beyond the intent of the Dodd-Frank Act.

The CFTC proposal would cause “severe market disruption” by transforming the relationship between swap dealers and clients such as pension funds and municipalities, the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association Inc. wrote to the Washington-based regulator in a letter dated Feb. 17.

Dodd-Frank called for regulators to crack down on abuses in the sale of derivatives to states, cities and school districts.

The CFTC rule would require that dealers acting as advisers to pension funds and municipalities act in the best interests of the client. Banks say the measure would create a fiduciary duty for such swap trades after Congress rejected proposals for a similar provision in the regulatory overhaul enacted last year.

For more, click here.

Spain Backs Single EU Platform for CO2; Poland, Germany Opt Out

Spain will join the single European Union platform for auctioning emission permits in the next phase of the bloc’s trading system after Poland and Germany said they will opt out and use national systems.

The EU, which has given away the majority of allowances since starting its cap-and-trade program in 2005, will require most emitters to purchase their allotments starting in 2013. While the EU regulator favors a common auctioning platform, saying a centralized approach offers the best “value for money,” it agreed last year to give member states the option of running their own national auctions.

Germany and Poland, the biggest and third-largest EU emitters in 2009, pushed for individual auctions when the regulation was discussed last year. Spain also backed the option, allowed by other EU states to ensure competition.

Compliance Action

VW Office Searched in Bribery Investigation, Handelsblatt Says

Prosecutors searched the office of Volkswagen AG’s procurement chief, Francisco Javier Garcia Sanz, as part of a bribery investigation involving the carmaker and Deutsche Telekom, Handelsblatt reported.

Prosecutors from the city of Stuttgart are treating Sanz as a witness, not a suspect, the newspaper said on its website Feb. 18.

Michael Brendel, a spokesman for Wolfsburg, Germany-based Volkswagen, declined to comment when contacted by phone.

Calls seeking comment after business hours from the Stuttgart prosecutors’ office weren’t answered.

Lloyds Reaches Mortgage Agreement with FSA, Makes Provision

Lloyds Banking Group Plc reached a voluntary agreement with the U.K.’s Financial Services Authority on initiating a customer review and contact program with regard to outstanding concerns with the variation of limits of some retail mortgage contracts, the bank said yesterday.

Lloyds is making a provision of 500 million pounds in relation to the contact program within its 2010 accounts which is expected to fully cover the payments.


Allstate Sues Citigroup, Deutsche Bank Over Securities

Allstate Corp., the largest publicly traded U.S. home and auto insurer, sued units of Citigroup Inc. and Deutsche Bank AG over claims they fraudulently sold hundreds of millions of dollars of mortgage-backed securities.

Allstate is seeking to recover the lost market value of the securities, as well as principal and interest payments, according to complaints filed last week in New York state Supreme Court in Manhattan.

The insurer said it bought more than $200 million of the securities, backed by residential mortgages, from the Citigroup defendants and about $185 million from the Deutsche Bank units after relying on misrepresentations and omissions regarding underwriting standards, owner occupancy data and loan-to-value ratios.

Alexander Samuelson, a Citigroup spokesman, and Scott Helfman, a spokesman for Frankfurt-based Deutsche Bank, declined immediately to comment.

Allstate, which accuses the banks of common-law fraud and negligent misrepresentation, filed a similar complaint Feb. 15 against JPMorgan Chase & Co. over $700 million of mortgage-backed securities.

The cases are Allstate Insurance Co. v. Ace Securities Corp., 650431/2001, and Allstate Insurance Co v. Citimortgage Inc. 650432/2011, New York state Supreme Court (Manhattan).

JPMorgan Says Lehman Left It ‘Goat Poo’ Collateral

Lehman Brothers Holdings Inc. tricked JPMorgan Chase & Co. into holding onto collateral that the bankrupt investment firm internally described as “goat poo,” according to a court filing by JPMorgan.

JPMorgan was stuck with Lehman’s worst securities backing $25 billion of loans as Lehman was sold to Barclays Plc in September 2008, JPMorgan said in a court filing last week. Lehman described the collateral as “toxic crap” and “goat poo” to be scattered “in other people’s backyards,” JPMorgan said in a court filing.

“Only later was JPMorgan able to determine that the position in which it unexpectedly found itself was the result of collusion and deception” by Lehman and Barclays, JPMorgan said in court papers.

The accusations appeared in amended counterclaims against Lehman in its lawsuit against JPMorgan. Both companies are based in New York. Lehman accuses JPMorgan of siphoning billions of dollars from Lehman, leading to it collapse.

Kimberly Macleod, a spokeswoman for Lehman, didn’t immediately respond to an e-mail seeking comment. Mark Lane, a spokesman for Barclays, declined to comment.

The case is Lehman Brothers Holdings Inc. v. JPMorgan Chase Bank NA, 10-03266, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

Rabbi in SAC Extortion Plot Sentenced to Four Years

A federal judge in Manhattan sentenced Milton Balkany, a Brooklyn, New York, rabbi, to four years in prison for trying to extort $4 million from Steven Cohen’s SAC Capital Advisors LP.

U.S. District Judge Denise Cote sentenced Balkany Feb. 18. A federal jury had convicted Balkany, 64, in November of extortion and blackmail charges after he threatened to disclose insider trading by SAC. There was no evidence at the trial that he had information about such trading.

Prosecutors said the rabbi, who was dean of the Bais Yaakov day school in the Borough Park neighborhood of Brooklyn, told the Stamford, Connecticut-based fund that a federal prisoner in Otisville, New York, to whom he was the spiritual adviser, had detailed the purported insider trading scheme to him. Balkany then called prosecutors in an attempt to put pressure upon SAC to further his scheme.

Cote agreed to impose a sentence less than the 87-to-108 months recommended by federal sentencing guidelines because of Balkany’s “lifetime of good works” and “generosity of spirit.” Eighty-seven people wrote letters in praise of Balkany, Cote said.

In sentencing Balkany, Cote said she was particularly concerned about a recent interview he gave in which he said he was being punished by the government because of his decades of community service. Cote said that Balkany showed no remorse.

The case is U.S. v. Balkany, 10cr441, U.S. District Court, Southern District of New York (Manhattan).

Sadia Insider Trading Probe Prompts Prison Sentences

Two former executives of Sadia SA, the foodmaker that BRF Brasil Foods SA bought to form the world’s biggest poultry exporter, were sentenced to prison and fined in the country’s first insider trading court ruling.

Former chief financial officer Luiz Gonzaga Murat Jr. was sentenced to 21 months in prison and fined 349,712 reais ($210,100), Brazil’s securities regulator said in an e-mailed statement. Romano Ancelmo Fontana Filho, a former board member, was sentenced to 17 months and fined 374,941 reais. Both can serve community service in lieu of prison.

Fontana’s lawyer, Eduardo Reale, and Murat’s lawyer, Celso Vilardi, didn’t return calls from Bloomberg News to their offices seeking comment.


Geithner Speaks to Financial Crisis Inquiry Commission

U.S. Treasury Secretary Timothy Geithner speaks in an interview with the Financial Crisis Inquiry Commission about the financial crisis and the government’s response.

Geithner spoke with the commission on Nov. 17, 2009. The interview was released Feb. 17 by the FCIC on its website.

For the audio, click here.

Bailouts Caused ‘Sense of Shame,’ Bank of England’s Tucker Says

Bank of England Deputy Governor Paul Tucker said regulators felt a “sense of shame” that taxpayers had to bail out banks after the collapse of Lehman Brothers Holdings Inc., as they devise rules to prevent a repeat of the financial crisis.

Tucker made the remarks at a speech given at Clare College, Cambridge University, England, late in the day on Feb. 17.

“This is the worst moment in the working lives of anybody who was in office in central banking or in regulation,” Tucker said at Cambridge. Regulators are working on new rules that will allow banks to fail “partly because of the sense of shame that we all have that we brought this cost to the taxpayer.”

Bank regulators and policy makers including finance ministers who attend last week’s G-20 meeting in Paris were trying to devise new rules that will allow banks to fail without requiring taxpayer bailouts or damaging economic growth.

Tucker also said that lower returns on equity for banks would give shareholders a greater incentive to cap executive pay.

For more, click here.

Comings and Goings

Sean McKee’s Named Head of New SEC Whistleblower Office

The U.S. Securities and Exchange Commission said Sean McKee’s will oversee the new Whistleblower Office in the Division of Enforcement.

The office will consolidate existing resources to administer the whistleblower provisions called for by the Dodd-Frank Wall Street Reform and Consumer Protection Act. The information was released in an e-mailed statement.

This is McKessy’s second stint at the SEC; he was senior counsel in the Enforcement Division from 1997-2000.

U.S. SEC Executive Director Diego Ruiz to Leave Agency

The SEC also announced that Executive Director Diego Tomas Ruiz will leave the agency. He has been in his position since August 2006, the agency said in an e-mailed statement. Before joining the SEC, Ruiz had been deputy chief for strategy and policy at the Federal Communications Commission.

Finra’s Shorris to Leave Brokerage Regulator’s Enforcement Unit

James Shorris, who directed investigations and prosecutions at the Financial Industry Regulatory Authority, is leaving the industry-funded brokerage regulator after seven years.

Shorris, 50, plans to step down in April and return to private practice, he said Feb. 18 in an interview. He had been executive director of enforcement since 2007 before serving as the interim head last year. He returned to his former post after Bradley Bennett took over the top job in January.

To contact the reporters on this story: Ellen Rosen in New York at; Carla Main in New Jersey at

To contact the editor responsible for this story: John Pickering at

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